Client Talking Points
Hats off to India's central bank. Governor Raghuram Rajan says too bad on the Bernanke model and RAISES rates for the second time in two months. Get this: India’s stock market loved it! Witness the +1.65% move on the Sensex as a credible central banker (one that goes both ways) protects the purchasing power of The People. India is back to bullish TREND here at Hedgeye, and should be on #StrongRupee.
Some of the French bureaucrats are whining about #StrongEuro’s impact on “exports.” Meanwhile, Mr. Market says that’s a complete crock. European stocks are loving it. Italy is up another +1.4% as business confidence recovers alongside a stronger currency. Bank of England Governor Mark Carney is driving the bull case for the Pound too. #EuroBulls remains a Top-3 Macro Theme for Hedgeye here in Q4.
Can you say D-O-G? That’s how the Financials act with Bernanke leaning on the long-end of the curve. The XLF was down in a market up week last week, and were down again yesterday as consensus is forced to chase slow-growth (Consumer Staples +1.2% yesterday). The Yield Spread (10year – 2year) compresses again this morning to 219 basis points wide. It's a bearish U.S. Growth signal versus bullish Europe.
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Top Long Ideas
In line with our #EuroBulls Q4 theme, we’re long the German DAX via the etf EWG. With European fundamentals showing improvement off low levels, we expect outperformance from Germany, and in turn for the region’s largest economy to pull the rest of the region higher. ECB policy remains highly accommodative and prepared to aid any of its sovereign members to preserve the Union. Inflation remains moderate and fundamentals are positive: confidence readings and PMIs are up since June, with factory orders trending higher and retail sales inflecting to push the trade balance higher. Finally, the unemployment rate has held steady at the low level of 6.9%, all of which signals to us that Germany’s economic climate is ramping up.
WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.
Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks. T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.
Three for the Road
QUOTE OF THE DAY
“Whenever you find yourself on the side of the majority, it is time to pause and reflect.” -Mark Twain
STAT OF THE DAY
Twitter currently has 218 million active monthly users, with 169 million of these users coming from outside the U.S, posting roughly 58 million tweets a day. 135,000 Twitter accounts are registered every day.